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PARIS — Shares of Swatch Group stock rose Monday — and those of Tiffany & Co. declined slightly — following a Dutch arbitration body’s ruling that Tiffany must pay the company damages totaling 402 million Swiss francs, or $448.6 million at current exchange.
The decision by the Netherlands Arbitration Institute on Saturday resulted from a lawsuit after the end of a luxury watch collaboration between the two companies to design, produce and market Tiffany watches. Swatch had sued Tiffany in December 2012 for 3.8 billion Swiss francs, or $4.24 billion, in lost profits. Tiffany in March 2012 filed a counterclaim, now dismissed, with the arbitration body.
Shares of the world’s biggest watchmaker, based in Biel, Switzerland, were up 0.8 percent to 586 Swiss francs, or $653.98, as trading ended Monday. In New York, the damage to Tiffany was muted, with shares falling 0.1 percent to $90.50.
Swatch Group chief executive officer Nick Hayek told WWD, “First of all, it’s a satisfaction that it’s approved that Tiffany really obstructed this business that we created together.”
He added, “But it’s a sad thing because there would have been much more that we could have done together. Now this is over and we moved on to Harry Winston,” referring to the brand that Swatch acquired earlier this year.
Michael Kowalski, chairman and ceo of Tiffany, commented, “We were shocked and extremely disappointed with the decision of the majority of the arbitral panel. We firmly believe the panel’s ruling is not supported by the facts of this case or the various agreements between the Swatch parties and the Tiffany parties.”
In addition to the arbitration award, Tiffany has been ordered to pay approximately $9.6 million to cover two-thirds of the arbitration costs and two-thirds of the legal fees incurred by Swatch.
Kowalski added that the company was reviewing its options with its lawyers and assured the investment community that it had “sufficient financial resources” to pay the amount designated.
Tiffany plans to take an after-tax charge estimated to be between $295 million and $305 million in the fourth quarter to cover the related expenses, which it expects will reduce its earnings for the fiscal year to between $2.30 and $2.35 a diluted share, down from the estimate of between $3.65 and $3.75 provided when it reported third-quarter earnings on Nov. 26. Year-to-date earnings were $2.21, implying revised fourth-quarter expectations for EPS of between 9 cents and 14 cents. Prior to the arbitration determination, analysts, on average, had expected EPS of 80 cents from the New York-based jewelry retailer.
The proceeds will be paid through cash on hand and funds available from its existing debt facilities. At the end of the third quarter, Tiffany had $521.2 million in cash and cash equivalents on its balance sheet.
Kowalski said the company’s executives “do not believe that the award will impact our ability to realize our existing business plans in the short or long term, and we are extremely pleased to be moving forward with our plans to design, produce, market and distribute our own Tiffany & Co. brand watches.”
Tiffany and Swatch in 2007 formed a 20-year strategic alliance that created a new Swiss-based firm to produce, design and market luxury watches under the Tiffany name. But it ended up being an unhappy pairing.
In 2011, Swatch said it ended the partnership and blamed Tiffany for “systematic efforts to block and delay the development of the business.” Tiffany shot back and said, “Swatch has failed to provide appropriate distribution for Tiffany & Co. brand watches” and insisted “Swatch honor its own obligations, particularly its obligation to respect Tiffany’s rights regarding brand management and product design.”